Facebook Borrowing to Scale Up Servers: $100,000,000. Facebook Stock: Priceless?

Facebook has announced that it will borrow $100 million to purchase new servers. This report suggests they are scaling up from 10,000 servers to about 60,000. Assuming Facebook Connect is widely adopted (and it probably will be) it does make sense that the server loads may go up dramatically.

So why did they borrow that money rather than just sell more stock? Silicon Alley Insider suggests, I think correctly, that it is because nobody is foolish enough to value Facebook at the whopping $15 billion that earlier deals were *rumored* to have been based upon. In fact Henry Blodget suggests that the Hong Kong deal did *not* value the company at 15 billion. I've noted before that Microsoft was probably not all that concerned about the monster theoretical valuation they gave to Facebook with the $240,000,000 investment - rather they were after foothold and ongoing advertising and partnership agreements.

So, with Facebook poised to lose a lot of money in the coming months to years, what will be their ultimate future? Without some huge breakthrough in their pitiful social networking advertising yields, the answer may not be all that Facebook friendly.

Powerset Part Two

Web 2.0 Startup playmaker Mike Arrington was very skeptical of Powerset during the early phases, but he appears to have had a change of heart after attending a demo of the semantic search engine, scheduled to launch soon. Today in TechCrunch Arrington quotes his reaction to a demo last month and writes (with a few qualifications I'm not noting):

.. when I tested the service I had something very similar to the “Aha!” feeling that ran through me the first time I ever used Google. In short, it is an evolutionary, and possibly revolutionary, step forward in search...

This is the kind of praise that Powerset has had from several key valley players so it is not surprise that even before launch they are already on the sales block hoping for a huge play from Microsoft who is especially flush with cash after the withdrawl of Microsoft's offer to buy Yahoo. Although a pricetag of $100,000,000 has been bandied about Arrington is likely correct that this will be considerably too low for a company that - if Powerset lives up to all the hype and all the promise - could become worth more than Google or Microsoft as the next search giant.

Microsoft's New Plan Same As The Old Plan

Microsoft's proposed bid for Yahoo was its fastest way to gain the scale necessary to compete against Google for online advertising dollars. Even before pulling the Yahoo offer, the company he had begun laying the groundwork for a strategy to compete with Google in online advertising. Microsoft CEO Steve Ballmer is convinced that online advertising is crucial to its future. So much so that he sees online advertising making up as much as 25% of the company’s business within a few years. Google generates approximately US$ 22 billion versus Microsoft's US$ 3.3 billion from online advertising.

Consumers and businesses increasingly are switching from desktop software like Microsoft's to free online services that do the same things. "We are absolutely committed to be the leading player in that endeavor," Ballmer told employees at a recent gathering.

Google dominates the market, taking in 77% of the revenues from search advertising where as Microsoft has 5% of U.S. search revenue, according to search marketing firm Efficient Frontier.
Acquiring Yahoo would not have given Microsoft the revenue nor the search market share it is seeking for, as Yahoo's strength is in display advertising not search advertising.

Microsoft Seven Times Bigger Than Google In Display Ads
Microsoft's share of the display advertising market is already about 7 times larger than Google's. Although the display market is smaller than search, it's expected to grow faster over the next few years because of a surge in video ads. Market research firm IDC figures that by 2012 the display market will double, to $15.1 billion; revenue from search will reach $17.6 billion.

Microsoft makes money in the display business in two ways. It sells ads on its own popular web sites, such as MSN and Hotmail, and it acts as a broker by placing ads on other companies' web sites and then splitting the revenue with them much like Google's Adsense Program. Smaller web sites use Microsoft because they don't have a salesforce to call on advertisers and ad agencies. And even large players like media giant Viacom have found that letting Microsoft sell some of the space on sites like Comedy Central and MTV can lead to higher revenues. "They can achieve better monetization than we can on our own," says Viacom CEO Phillipe Dauman.

It's All About Display
Microsoft's new pitch is that, in display advertising, the company has the most sophisticated technology of any company. It can help advertisers precisely target display ads and assess the value of ads even when web surfers don't click on them. Microsoft is also making the case that search advertising, Google's gold mine, is overrated. Soon the company, it plans to introduce new ad technology that it says will demonstrate that to advertisers. "We're going to win with this strategy," said Keith Lorizio, Microsoft's advertising manager. More>

Image Source: Forbes

Andreessen to Become Facebook's 4th Board Member

Kara at Boomtown is reporting that web visionary Marc Andreessen, who brought us Netscape and Ning, is likely to become the 4th board member of Facebook.

This is particularly interesting because Ning is a major player in the Open Social Alliance spearheaded by Google, an alliance that includes Myspace but not Facebook. Is Facebook seeking to bridge that gap in the social networking space? Certainly Facebook's power plays in the executive and board areas suggest that the social juggernaut has even bigger plans.

With the Microsoft Yahoo merger on the skids, many have suggested that Facebook may be a key new aquisition target for Microsoft.

Yahoo Shares Drop as Microsoft Merger Melts

Yahoo shares opened this morning at $23.02, down $5.65 from yesterday's close. However Yahoo has bounced back a bit to just under $25 per share at 1pm, perhaps reflecting investor's optimism that a deal will still be struck with Microsoft after what some - including me - think was a case of MS CEO Ballmer calling Yahoo's high price bluff.

Jerry Yang wrote investors and the public today at the Yahoo Andecdotal blog in a post titled "OK, so now what? There he writes:

We’ll continue to execute on our plan — making your Internet experience as personal, relevant, open and social as possible, serving advertisers so well they insist on working with us, and opening up Yahoo! in a way that developers dream of. And, we’ll also continue to pursue strategic opportunities that position us for long-term success.

Jerry also appeared to be doing a bit of covering Yahoo's butt in what is likely to be a spate of shareholder lawsuits suggesting Yahoo should have sold the company at the price offered:

Frankly, there’s a lot of nonsense and misinformation in what’s being reported. Just so we are all clear, here’s what happened. The board took its mission very seriously. We clearly indicated to Microsoft that we were open to a transaction but only if it were on terms that fully recognized the value of Yahoo! and was in the best interests of our stockholders.
No one is celebrating about the outcome of these past three months… and no one should.

But wait ... didn't somebody hear a champagne cork pop at Jerry's house? His statement does not really jive with the open letter from Steve Ballmer or the rumor mill where it has been strongly suggested that Yahoo was a lot more interested in killing this deal at all costs than compromising in any reasonable way.

Disclosure: I am (still!) long on YHOO

Microsoft and Yahoo

Both in the mainstream TV news and online there seems to be a lot more noise than signal about the Yahoo Microsoft merger situation. I still think that Microsoft plans to acquire Yahoo and that they will find a way to make it happen over the next few months.

This view seems to put me in the minority because many are saying the deal is "dead". That is technically true of course - Microsoft withdrew their offer yesterday - but Ballmer's letter made it very clear that he was still open to a sale, and I think a quick read between the lines suggests he is trying to set up Jerry Yang for a hard fall. Without help from Google it'll be tough for Yang to keep his post after spearheading the effort that will effectively revalue the stock from Microsoft's top offer of $33 to tomorrow's open which is likely to be in the low $20's.

Techcrunch is reporting that the valley rumor mill suggests Yahoo is trying to get a Google deal announced before tomorrow's opening to avoid a major Yahoo selloff, and given the very favorable view of Yahoo from top Googlers Page, Brin, and Schmidt and their mutual distate for all things Microsoft I think this deal is probably going to happen, though I also think it will not do much to immediately prop up Yahoo's stock price which is likely to go down $5-$8 at tomorrow's open and possibly even more if frustrated investors decide it's time to give up on the company.

Disclosure: Long on YHOO

Ballmer's Letter to Jerry Yang Withdrawing Microsoft's Offer

Following is the verbatim text of the letter from Microsoft's Steve Ballmer to Yahoo's Jerry Yang. The source of this letter is Microsoft.

May 3, 2008

Mr. Jerry Yang
CEO and Chief Yahoo
Yahoo! Inc.
701 First Avenue
Sunnyvale, CA 94089

Dear Jerry:

After over three months, we have reached the conclusion of the process regarding a possible combination of Microsoft and Yahoo!.

I first want to convey my personal thanks to you, your management team, and Yahoo!’s Board of Directors for your consideration of our proposal. I appreciate the time and attention all of you have given to this matter, and I especially appreciate the time that you have invested personally. I feel that our discussions this week have been particularly useful, providing me for the first time with real clarity on what is and is not possible.

I am disappointed that Yahoo! has not moved towards accepting our offer. I first called you with our offer on January 31 because I believed that a combination of our two companies would have created real value for our respective shareholders and would have provided consumers, publishers, and advertisers with greater innovation and choice in the marketplace. Our decision to offer a 62 percent premium at that time reflected the strength of these convictions.

In our conversations this week, we conveyed our willingness to raise our offer to $33.00 per share, reflecting again our belief in this collective opportunity. This increase would have added approximately another $5 billion of value to your shareholders, compared to the current value of our initial offer. It also would have reflected a premium of over 70 percent compared to the price at which your stock closed on January 31. Yet it has proven insufficient, as your final position insisted on Microsoft paying yet another $5 billion or more, or at least another $4 per share above our $33.00 offer.

Also, after giving this week’s conversations further thought, it is clear to me that it is not sensible for Microsoft to take our offer directly to your shareholders. This approach would necessarily involve a protracted proxy contest and eventually an exchange offer. Our discussions with you have led us to conclude that, in the interim, you would take steps that would make Yahoo! undesirable as an acquisition for Microsoft.

We regard with particular concern your apparent planning to respond to a “hostile” bid by pursuing a new arrangement that would involve or lead to the outsourcing to Google of key paid Internet search terms offered by Yahoo! today. In our view, such an arrangement with the dominant search provider would make an acquisition of Yahoo! undesirable to us for a number of reasons:

• First, it would fundamentally undermine Yahoo!’s own strategy and long-term viability by encouraging advertisers to use Google as opposed to your Panama paid search system. This would also fragment your search advertising and display advertising strategies and the ecosystem surrounding them. This would undermine the reliance on your display advertising business to fuel future growth.

• Given this, it would impair Yahoo’s ability to retain the talented engineers working on advertising systems that are important to our interest in a combination of our companies.

• In addition, it would raise a host of regulatory and legal problems that no acquirer, including Microsoft, would want to inherit. Among other things, this would consolidate market share with the already-dominant paid search provider in a manner that would reduce competition and choice in the marketplace.

• This would also effectively enable Google to set the prices for key search terms on both their and your search platforms and, in the process, raise prices charged to advertisers on Yahoo. In addition to whatever resulting legal problems, this seems unwise from a business perspective unless in fact one simply wishes to use this as a vehicle to exit the paid search business in favor of Google.

• It could foreclose any chance of a combination with any other search provider that is not already relying on Google’s search services.

Accordingly, your apparent plan to pursue such an arrangement in the event of a proxy contest or exchange offer leads me to the firm decision not to pursue such a path. Instead, I hereby formally withdraw Microsoft’s proposal to acquire Yahoo!.

We will move forward and will continue to innovate and grow our business at Microsoft with the talented team we have in place and potentially through strategic transactions with other business partners.

I still believe even today that our offer remains the only alternative put forward that provides your stockholders full and fair value for their shares. By failing to reach an agreement with us, you and your stockholders have left significant value on the table.

But clearly a deal is not to be.

Thank you again for the time we have spent together discussing this.

Sincerely yours,

Steven A. Ballmer
Chief Executive Officer
Microsoft Corporation

------------------------

Analysis:

As we noted in the previous post there is good reason to believe that Microsoft is still in this to win Yahoo. Ballmer even uses the word "remains the only alternative", suggesting that the offer is still informally on the table. Ballmer somewhat ominously says:

.... our offer remains the only alternative put forward that provides your stockholders full and fair value for their shares. By failing to reach an agreement with us, you and your stockholders have left significant value on the table.

The Yahoo board is likely to have significant concerns already about shareholder lawsuits if the stock tanks following Microsoft's withdrawl, and this statement seems designed to drive that board vs shareholder wedge even further.

Of great concern to Ballmer in the letter are Yahoo's negotiations with Google to have Google take over Yahoo advertising. Ballmer implies that Microsoft was very concerned about the ability to compete with Google using online advertising tools. Yahoo is now refining the adwords-like "Panama" but may diminish that project if Google starts handling Yahoo monetization of advertising. Ballmer also suggests that Yahoo negotiators were using this Google alliance as something of a "poison pill" to kill the deal.

So, has the fat lady sung yet? I think not, and we are in for more fun as the high stakes game for the control of the internet ... continues.

Disclosure: Long on YHOO

Microsoft Walks Away From Yahoo

Microsoft has walked away from the merger talks with Yahoo after the two companies failed to reach agreement on price per share. Microsoft had increased their original offer of $31 per share in cash and stock exchanges to $33 per share (I'm not clear if that $33 took into account Microsoft's lower price since the initial offer or did not factor that in). Most reports said that Yahoo eventually indicated they would sell for $37 per share.

My take on this is that this is a clever strategic move by Ballmer and Microsoft who I think still plan to acquire Yahoo. Yahoo's share price is likely to be hit fairly hard by this development effective at Monday's open, probably sending Yahoo down significantly though it would seem unlikely Yahoo will approach former lows.

The degree of the share price drop will depend on whether the market thinks Microsoft is out or just bluffing, but either way this is likely to create a lot of downward pressure on Yahoo's share price. Microsoft will likely start buying shares on the open market at these reduced prices.

In the next post we'll take a look at today's letter sent by Microsoft CEO Ballmer to Yahoo CEO Yang, which suggests it is lucky for Jerry that Steve didn't have any chairs handy.

CNET Reports
Disclosure: Long on YHOO

Enterprise Application Audit

If you are managing an enterprise application, especially one that has a significant online presence, it is a good idea to regularly review new applications and innovations that may solve current problems or lower your costs on existing solutions.

One example of a resource to bookmark is Google's Enterprise Application list where you'll find several partners who have deployed solutions for Google Apps. Several of these partners have very robust applications for communication, emailing, and data integration that take advantage of Google's powerful and free to very low cost programs.

Another bookmark for those considernig or working on Microsoft platforms is Microsoft's Patterns and Practices Website which offers examples of a variety of Enterprise solutions using MS systems and applications.

However perhaps the strongest way to audit your Enterprise is to simply take a few minutes to list each of the key challenges you are facing, articulate them carefully so you can form a very targeted query, and then simply take some time to search online. Ideally you'll find *people* who have solved this problem and get them to share their experiences if they have not already written about their solution, but you'll also hopefully run into new or revised applications that can help.

Google Docs: Fighting for the Enterprise, Winning the World?

One of Google's most brilliant strategies to conquer the online world hasn't made them more than a trivial amount of revenue and perhaps never will. But they'll be OK with that, because Google is slowly encroaching on Microsoft at a game that company has dominated for over a decade with the Microsoft Office Suite.

Google Docs are still a small part of both the home and enterprise software market but they appear to be slowly getting incorporated into home desktops and enterprise applications around the globe, and this poses a huge threat to the Microsoft Office dominance in that market.

Wordsmith Nick Carr has it right and as usual puts the point cleverly:

[Google] knows that, should traditional personal-productivity apps become
commonplace features of the cloud, supplied free or at a very low price, the
economic oxygen will slowly be sucked out of the Office business. That doesn't
necessarily mean that customers will abandon Microsoft's apps; it just means
that Microsoft won't be able to make much money from them anymore. Microsoft may eventually win the battle for online Office applications, but the victory is
likely to be a pyrrhic one.

Pyrrhic victories are hardly the stuff of which success is made, and Carr's point is excellent here. Google does not even have to win some of the battles they have been fighting to win the big war for massive online dominance and untold online riches.

Google's recent brilliancy along these lines was forcing the 700MHZ spectrum open without spending a dime on it. Google was involved in the big spectrum auction but probably had no interest in winning. Rather, Google just wanted to make sure the big winner (which happened to be Verizon), would be required to adopt certain rules that happened to give Google big advantages in the mobile space in terms of the ability to capitalize on that market. I'd agree with Google that they were good rules - but that's beside the immediate point here, which is that Google's has been extremely effective at exploiting resources - or gaining access to them - without spending nearly as much as their competitors.

Historically Microsoft did this kind of thing as part of their massive capitalization and ability to spend. Google appears to be pulling this off without much spending at all, giving their competitors even more Pyrrhic victories while Google hauls away the really big online treasure.

Microsoft Yahoo Merger: The Four Dollar Divide

The Wall Street Journal is following Microsoft and Yahoo closely and via Google news you can read part of the WSJ report here but for the full WSJ go to Google News and select the story from there.

Microsoft has indicated that they will raise their offer to $32 or even $33 to avoid a hostile takeover fight, and Yahoo appears to be willing to settle in the neighborhood of $37. With only four dollars per share standing between a huge black eye for Ballmer and a collapse in Yahoo's price how long can this go on?

Not long at all.

I'd suggest a decision will be made by next Monday, and both companies will settle in at very close to $34 per share. Microsoft now appears almost certain to win a proxy battle given Yahoo's share price weakness with no real prospects for a big upswing in YHOO's price. The Yahoo board still has some negotiating power in that a hostile battle is probably an undesirable prospect for all parties and they can force that to happen, but by this time everybody knows Yahoo would lose that fight.

The union will threaten Google's dominance and shake up the internet for years to come, though the merger will only be the beginning of a very complex melding of different corporate cultures and company vision.

Disclosure: Long on YHOO

Tibco Gets On The Microsoft Silverlight Bus

TIBCO (The Information Bus Company) which sells business process management and business integration software is reportedly verbally committing to use Microsoft's Silverlight technology. The company plans to use Silverlight for their product development to create rich internet applications (RIAs) in cases where AJAX might not meet their needs.

Silverlight is a cross-browser, cross-platform, and cross-device plug-in for creating RIAs on the .NET platform. In an interview with InfoWorld, Rourke McNamara, Director of Product Marketing for SOA at Tibco said that "Tibco likes Silverlight over alternatives, such as Adobe's Flash platform, because developers can leverage existing skill sets like the ability to develop in C#. Silverlight also presents a lightweight environment, and Microsoft and Tibco have many joint customers."

Windows XP SP3 Released

Microsoft has released Windows XP SP3 to the web in several languages including English.

ARS Technica reports

Concerns over the general overall quality of the Microsoft Vista Operating System have put Microsoft in a bind with respect to longer term support for the XP environment.

Many companies as well as individual users have no intention of upgrading to Vista in the near future. In fact some installations have actually reverted to XP from Vista, preferring what appears to be the superior stability and familiarity of the XP Operating System.

My personal experience has been that OS upgrades are generally more trouble than they are worth, and I'm happier when I wait rather than plunge in and face the incompatibility consequences of the upgrades. Although it's probably not a good path to profits, I'd prefer to see Microsoft focus on the *smaller picture* with respect to software and improve things incrementally with easy-to-install upgrades rather than bring out massive, potentially bloated, and often challenging brand new programs.

Microsoft and Yahoo: What Will Ballmer Do?

The "deadline" imposed by Microsoft on Yahoo expired yesterday, which makes it likely that Microsoft is either preparing to drop their bid or - and this appears a more likely scenario - preparing for a hostile takeover where they'll try to get a new slate of directors approved for Yahoo who would view the takeover favorably, leading to a probable merge this summer.

Yahoo's board meets today and although it would be interesting to be there I'm certainly not envious of the Yahoo board right now. If Microsoft drops their current offer Yahoo stock is likely to drop severely - perhaps even below the 52 week low into the high teens. Shareholders will be understandably upset if fighting Microsoft has led to nothing more than a 30%+ drop in share price. Some have suggested a Google advertising partnership may help matters but I'm skeptical that the broad market views Yahoo as favorably as Yahoo seems to think. If they did one would expect Microsoft's share price to be faring much better than it has while people await the takeover verdict. In fact most stock watchers are convinced that if Microsoft announces they are dropping the quest for Yahoo MSFT will see a significant jump in share price.

Larry at CNET has noted some interesting alternative scenarios to a Microsoft Yahoo merger, even including a CNET option.

I think my prediction is the same as it has been for some time: Microsoft will start the hostilities but will also let Yahoo know they can get about $34 per share if Yahoo does not put up a fight. Yahoo will (finally) give in to avoid a potential price meltdown, lawsuits, and a fight that is only going to misdirect energy while both companies watch Google scoop up the increasing online advertising revenues.

Disclosure: Long on YHOO

Feeling Lucky?

Over at CNET Steve Tobak is wondering how much of a role luck plays in business success. Tobak nots some big lucky breaks in business such as Bill Gates' landing the IBM OS contract that launched Microsoft after being second choice for the job, but he winds up concluding:

... in my experience, passion, intelligence, hard work, perseverance and timing play a bigger role in success than luck.

I'm in partial agreement but I don't think I'm as convinced as Steve that things we can control play a big role in business success. If they did simply cutting loose a bunch of hard working, smart folks on new projects would generally bring success, and this is rarely the case. In fact if we look at most of the most conspicuous tech success stories of the century they seem to be more a product of a small number of people finding new solutions to major problems, often stumbling into success.

Yahoo, Google, Microsoft, and Apple all started small - very, very small in fact - and I think all of them would have happily sold out for tiny fractions of their current values very early in their growth curves before the founders understood the significance and magnitude of their key technological innovations. Yet they did not sell out because in I think all these cases there were not serious buyers who were willing to pay much in the early stages. Neither the founders of these tech behemoths, nor the key players who could have bought them out realized the potential impacts of these companies. All these four, and hundreds of other smaller companies, have gone on to become global leaders and global brands.

I'm not suggesting they were just lucky, but I think serendipity may play a large role in success, and it is probably helpful to recognize that success may come as much from circumstances that you cannot control as from things you can.

Microsoft: Despite Record Earnings Stock Falls in After Hours Trading

Microsoft (MSFT) reported record earnings for the quarter but recent stock price increases appear to have anticipated a stronger report as the stock has fallen about 1.38 per share in after hours trading as of 4:34 pm EST.

Still, very favorable earnings reports are now in from Tech giants like Google, Yahoo, Apple, and Microsoft. Could all the talk of severe recession problems be overblown when applied to the tech sector?

Over at Yahoo Tech Aaron Task reports:

A funny thing is happening amid all the recession talk: Most big tech companies are reporting spectacular earnings and revenue growth, especially those with significant overseas business.

Disclosure: Long on YHOO

Microsoft's Live Mesh

The big buzz right now is for a new Microsoft online initiative called "Live Mesh" that seeks to synchronize most of your computing needs into a single online (MS Windows driven?) environment.

I'm still digesting how this will play in the real world, but clearly Microsoft wants to provide a single framework that will work across many devices and programs, and clearly this is a good idea. What is not clear however is whether Microsoft is the best steward for this type of environment. If, for example, Windows is a requirement for Microsoft Mesh then they have already excluded a large group from the Mesh environment.

Mary Jo Foley at ZDnet has some interesting preview notes about this new Microsoft platform / service which will officially debut soon at the Web 2.0 Expo going on right now in Silicon Valley.

More Microsoft Mesh news later as it comes in ...

Yahoo Tops Consensus at .11 Per Share

Yahoo (YHOO) reported earnings of about .11 per share after the market closed today, in line with the "whisper numbers" of this morning but handily topping analyst estimates of .09 per share.

Henry Blodget has some real time analysis as the market digests this news, which appears unlikely to have a significant impact on the Microsoft merger deal except perhaps to bump up Microsoft's acquisition offer by a few dollars per share.

As the news rolls in YHOO is only up about $0.10 in after hours trading, indicating that this "good news" may be seen more as "no news" by markets that will likely soon be clamoring for some closure to the Microsoft situation.

Disclosure: Long on YHOO

Yahoo Earnings Out Today

Despite some breathless pronouncements that Yahoo's earnings report will be a watershed moment in the company's long history, I would strongly suggest that Yahoo's earnings are unlikely to have much if any impact on the fate of the company - a fate that is very likely squarely in the hands of Microsoft.

Obviously if the Q1 earnings come in way above the modest analyst expectations it is possible that Yahoo will escape a Microsoft merger by "earning" in the eyes of the market a much higher valuation. However the most likely scenario has Yahoo coming in with earnings that are in line with or only modestly above analyst expectations. Given how hard Yahoo is now working to improve the company's prospects and fend off a Microsoft takeover even a modest improvement is unlikely to be viewed all that favorably by investors. A few dollar increase in the share price might up Microsoft's bid for Yahoo, but it is unlikely to change the game much.

Assuming today's after close earnings are pretty much in line with analyst expectations of about .09 per share you can expect Microsoft to proceed with a proxy fight to takeover Yahoo, and you can expect Microsoft to win this battle. Investors - apparently even some major investors on the Yahoo board - have tired of Yahoo's failure to capitalize on their many strengths to challenge Google's online dominance.

Barring spectacular YHOO Q1 earnings, the fat lady sings today, and she's singing a Microsoft tune.

Disclosure: Long on YHOO

Microsoft "Albany" Online Software Suite in Beta Release

Microsoft has released in beta a new software suite targeted at the consumer market and named "Albany". Product manager Bryson Gordon explains the product:

“Albany” is the codename for a new all-in-one subscription service
of essential software and services consumers told us were most important to
them. We’ve pulled together the productivity tools people need to organize
their lives, security to help keep their personal information safe and
online services that make it easy for them to keep in touch with friends and
family, and folded them all into a single service that also ensures the
user’s PC is running the latest security and productivity
software. Bryson goes on to note that the Albany package
will include Microsoft Office Home and other productivity and collaboration
software components.

Albany will be a subscription based service which makes me skeptical that Microsoft can compete with the increasingly robust free offerings from Google and others. Google has started to include powerful collaboration and productivity tools such as Google Spreadsheets where users can quickly create forms for data entry which can be used across the internet. Companies like Zoho also offer some remarkably powerful online tools for database creation, most at no charge. In an environment where free services are rapidly replacing subscription services, can Microsoft Albany make much of a mark?

Source: Microsoft Press Release

Microsoft Buys Farecast For $115,000,000

Microsoft has purchased the innovative travel service "Farecast" for a reported $115,000,000. SeattlePI has more about this breaking story. Farecast uses a predictive algorithm to help users determine if airline ticket pricing is poised to go up or down from the current levels and thus helps to find bargain pricing online.

Rather than develop extensive "Web 2.0" features internally, it is becoming very clear that Microsoft is trying to fuel their massive new web initiative with cash, buying companies like Farecast (and Yahoo) that can make Microsoft an immediate player in the rapidly evolving online environment.

Disclosure: Long on YHOO

Wall Street Journal: Yahoo and Google May Become Search Bedfellows

The Wall Street Journal is reporting that Yahoo and Google are closer than ever to a deal where Yahoo would outsource their search monetization to Google. Google continues to do a much better job of producing revenue from searches - some estimates suggest that Google gets more than twice Yahoo's revenue per search click.

Yahoo also is continuing to negotiate with AOL as part of Yahoo's efforts to stave off a takeover by Microsoft.

The Journal suggests that Yahoo's April 22 earnings report may play a key role in the Microsoft takeover argument. If Yahoo comes in with strong earnings it will strengthen the idea that the Microsoft bid is too low, but if earnings are weak it will support Microsoft's efforts to force a Yahoo merger against the will of the current Yahoo board.

Disclosure: Long on YHOO

Microsoft's Live Rome Edition. The Empire Stikes Back?

Harrison Hoffman, reporting at CNET, is impressed with the news feature that Microsoft is now bringing to the LIVE search environment as part of the changes to LIVE that are codenamed "ROME" and are to be released this spring. LIVE has struggled for some time to take market share from Google and/or Yahoo, and so far LIVE has failed to deliver.

Thus despite the cleverness of the Microsoft LIVE team I'm skeptical that they can do much to pull readers away from Google's excellent Google news service unless they manage to bring news directly into the explorer browser. Microsoft has a sorry history of losing to Google in virtually every head to head search item, so it is hard to bet that LIVE news will fare much better given that it does not even appear to include as many news sources as Google News.

PageFlakes Low Pageviews & Out Of Gas (cash)

Personalized web page startup Pageflakes is running out of cash and is desperately seeking a buyer reports Gigaom. Pageflakes aggregates RSS feeds and widgets in a customizable AJAX-based personal web page.

Pageflakes has around 1.5 million visitors a month and over 200,000 registered users. However that pales in comparison to their closest pure competitor Netvibes. However, the real competitors are Google's iGoogle, Yahoo's 360, Microsoft and AOL which too offer personalized web pages. The cost of these services is borne by their core offerings.

However, Pageflakes's personalized page is their core offering and it is much harder to monetize. Further to garner premium ad dollars the site needs serious traffic, which costs money. Again the majors can acquire traffic simply by putting up a "tab" to their personalized web page offerings.

According to Gigaom Pageflakes is just the tip of the iceberg and many 2005-2006 consumer web startups that rely of on VCs money will find life increasingly tough once the money stops flowing (See Crash 2.0 Coming). At least Pageflakes has interested buyers, even if they are not big spenders.